Olympus Expects Net Loss, but Core Business Seen Unscathed

Olympus Corp President Shuichi Takayama bows after speaking at a news conference in Tokyo February 13, 2012. Japan's scandal-hit Olympus Corp on Monday forecast a $410 million full-year net loss due to its ailing camera business and tax asset writedowns, but strength in its core endoscope business highlighted its attractiveness to potential investors. Photo: Reuters

(Reuters) - Scandal-hit Olympus Corp on Monday forecast a $410 million full-year loss due largely to its ailing camera operations, but strength in its endoscope business suggested its core division would emerge from the debacle unscathed and its president said it might try to go it alone without seeking outside capital.

The Japanese maker of cameras and medical equipment has been considering alliance offers to shore up its finances after a $1.7 billion accounting scandal severely depleted its assets, with Sony, Fujifilm, Terumo and South Korea's Samsung Electronics believed to be among possible suitors.

Given the nature of the (endoscope) business, there are limited competitors and the scandal hasn't had a huge impact on the business, said Yasuo Sakuma, a portfolio manager at Bayview Asset.

The question is how aggressive potential bidders will be. Sony may be the most aggressive as new CEO (Kazuo) Hirai has said explicitly that medical services will be a new focus. Fujifilm may be a bit reluctant as they could have anti-trust problems.

Olympus President Shuichi Takayama reiterated on Monday that any decision on tie-ups must wait until the installation of new management after its annual shareholders' meeting in April, and added that pressing on without boosting capital was also an option.

I think it's a possibility, Takayama told reporters, when asked if it was an option to not receive a capital injection and instead move ahead independently by accumulating profit.

Olympus said it now expects a 32 billion yen ($412 million) net loss for the financial year ending March 31, hit in large part by impairment losses in its ailing camera business and tax asset writedowns.

That compared with a 3.87 billion yen net profit in the prior year, and its previous forecast for an 18 billion yen profit that it withdrew in the wake of the scandal.

For its October-December third quarter, Olympus, which holds a 70 percent share of the global market for diagnostic endoscopes, reported a 756 million yen net loss, compared with a 2.04 billion yen net profit in the same period a year earlier.

ENDOSCOPE BUSINESS

In a sign that its core endoscope business may survive the scandal untarnished, operating profit in its medical systems business rose 7 percent year-on-year to 18.87 billion yen during the quarter, having recovered from disaster-related supply disruptions earlier in the year.

By contrast, its imaging systems division, which includes its camera business, booked a quarterly operating loss of 3.56 billion yen.

In December, Olympus filed five years' worth of corrected earnings statements to iron out its accounts and said that as of the end of September net assets had dwindled to 46 billion yen, from a restated 225 billion yen in March 2007.

As of end-December, Olympus had an equity ratio of 4.4 percent, compared with about 30 percent for its rivals.

The accounting scandal erupted when Olympus fired its British chief executive Michael Woodford on October 14, after he raised concerns about dubious book-keeping.

Since then, Olympus has admitted it used improper accounting to conceal massive investment losses under a scheme that began in the 1990s. It remains under investigation by law enforcement agencies in Japan, Britain and the United States.

Olympus is banking on the April 20 shareholder meeting to mark a turning point in the scandal, with at least six of its 11-member board, including Olympus President Shuichi Takayama, set to resign and be replaced by shareholder vote.

The meeting is expected to be a lively one. It is the first such gathering for shareholders since the scandal wiped out about half of Olympus' market value, and Woodford himself has said he plans to attend.

On Monday, the stock finished up 0.4 percent at 1,282 yen, against a 0.6 percent rise in the benchmark Nikkei average.

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